Recession: Where did the money go?
Anytime there is a recession, it is
believed that there is less money in circulation. Business is slowing
down and customers are not buying as much as they used to. This is the
reality of many businesses. The disposable income of most individuals
has gone down. Instead of spending more to stimulate growth, most
businesses are cutting costs.
Many companies are laying off workers to
keep costs down. This results in less demand for goods and services,
which means fewer turnovers for businesses, which can trigger another
round of layoffs. It is a vicious cycle. Individuals are also spending
less in areas that will generate growth. Beyond what should be the right
response to dwindling income, one question to ask is: ‘Where did the
money go?’
We can understand what happened to the
dollar supply due to the crash in oil prices since 2014. There is more
naira chasing fewer dollars. What happened to the naira supply? Has 50
per cent of the naira in circulation left our borders also? Why is the
naira not circulating around us as before? Why are sales down? Why does
our wallet get to hold less naira?
The reality is that we feel there is no
money because we are seeing less of it. The press is awash with tales of
woe; companies are reinforcing the message by cutting costs and laying
off workers. Individuals are also cutting back, scaling down and in some
instances, doing without. There is a general sense of doom. There are
very few voices of hope. The inspirational leadership required at times
like this seems to be lacking while the stimulus package seems to be
slow in coming through.
Getting out of recession
The first line of attack in getting out
of recession is to have a positive outlook of the future, to have hope.
Your mood influences your actions. If you feel gloomy, you tend to be
pessimistic and lethargic; you pull back and in the process miss
opportunities. When you have hope, you are fired up to take positive
action. You are inspired to come up with new solutions. Franklin Delano
Roosevelt is credited with ‘talking America out of the great
depression’. Words are very powerful.
This is a season of unprecedented
opportunities. You cannot see them if you are pessimistic. The
unprecedented volume of naira that circulated during the 2015 election
season has not left our borders. It is somewhere. Some may have been
retrieved or seized by Economic and Financial Crimes Commission, but it
is technically still in circulation as the banking system is virtually
cashless.
How much money you have is now expressed
as figures and digits in your account balance, and not necessarily the
volume of cash in your bank’s branch. It is when you need hard cash that
they move it with a bullion van. The economy is saturated with cash,
but little is showing up in your account balance. That is the issue.
With the right frame of mind, you can get to work and turn things around
in time.
In addition to a mind-set shift, you
need to upgrade your skills to be able to grow and attract more money.
Your current skill set has brought you as far as you can go. To go
further, you need to upgrade. One of the key skills you need is how to
use other people’s money and other people’s time to make more money.
Most of us lack business skills. We are afraid of entrepreneurship, and
when we gather enough courage to step out, we jump in head first without
doing proper due diligence. We lose our money and other people’s money
in the process.
Moving from an employee to an
entrepreneurial mind-set takes a lot of internal work, as both are
essentially opposite. While the employee seeks security, the
entrepreneur seeks freedom. While the employee looks out for himself
(keeping his job) the entrepreneur seeks to grow his business and employ
more people.
Entrepreneurship is more than putting
aside some money and going into business. A stint in a business school
helps but most of the training is on the street. If having an MBA was a
prerequisite for succeeding in business, many MBA graduates would be
successful entrepreneurs rather than employees.
Growing your business often involves
taking on debt (unless you have very huge reserves). Debt is a good
leverage and also a double edged sword. If you don’t know how to wield
the sword, you can inflict a deep cut on yourself. The two sides of the
sword represent two types of debt – good debt and bad debt. Good debt
makes you richer while bad debt makes you poorer. Many think that good
debts are debts incurred on items they consider as assets. Hence many
borrow to acquire equipment etc. that do not end up paying for itself.
It is tempting to think that if I have
this or that, I will start a business or expand my business. Many have
found out otherwise through the hard way. Rather, it should be the other
way round unless you are really sure of what you are doing, which is
not often the case. Use what you have to start with, and as it grows and
you have a handle on what you are doing, you can use the leverage of
debt to speed up your growth. If what you are doing is already
profitable, then it makes sense to borrow to expand it and make it more
profitable. If all you have is hypothesis (if I do this, I will get
that), then you are gambling with debt (and will get slammed with bad
debt).
It makes more sense to start small and
scale up gradually. Rather than look for money to buy land to go into
farming for example, you can lease for a very small fraction of the
amount and you are in business, and in a position to test your
hypothesis. With a good handle on the cash flow backed by actual
knowledge of the market, you can take informed decisions.
Nigeria is open for business, and if you
invest in knowing what you need to do, you will be in position to see
the opportunities and utilise them, using other people’s money (debt)
and other people’s time (employees). The recession you are experiencing
is your own reality. If you change your mind-set and step up your game,
you will soon be on the path to growth and prosperity. It is different
strokes for different folks.
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